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Risk in Agriculture

Risk in Agriculture. Ake Olofsson Rural Finance Officer Food and Agriculture Organization of the United Nations. Investment in Agriculture.

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Risk in Agriculture

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  1. Risk in Agriculture Ake Olofsson Rural Finance Officer Food and Agriculture Organization of the United Nations AFRACA/FAO/World Bank

  2. Investment in Agriculture • Investment is the engine of growth. Access to financial services can provide access to the production means required to increase agricultural productivity and scale that lead to higher incomes. AFRACA/FAO/World Bank

  3. Provision of Financial Services • Not necessarily a task for financial institutions only. Much of the finance in the agricultural production value chain is taken care of by other actors such as traders, processors and input supply companies. AFRACA/FAO/World Bank

  4. Risk Management • Risk management is about care to maintain income and avoid/reduce loss or damage to a property resulting from undesirable events. The key to determining who bears risk is finding out who will suffer a loss if something bad happens. AFRACA/FAO/World Bank

  5. Risk in Agriculture • Production/Yield • Price/Market • Asset/Property • Institutional • Operational • Financial • Personal AFRACA/FAO/World Bank

  6. Production/Yield Risk • Weather • Soil quality • Pest and disease • Planting date • Plant genetic potential • Agricultural practices AFRACA/FAO/World Bank

  7. Risk Management in Agriculture • Policy issues • On-farm physical measures • Financially-based mechanisms • Good agricultural practices AFRACA/FAO/World Bank

  8. Reduce or Cope with Risk? • Risk reduction/mitigation • Risk coping • Risk retention • Accumulation of saleable assets • Savings • Risk transfer • Insurances AFRACA/FAO/World Bank

  9. Lending to Agriculture • High systemic, market and credit risks • Slow return on rural investments • Low profitability of small-holder agriculture • Inability to offer guarantees due to low levels of assets • High cost due to geographical dispersion of clients • Poor infrastructure, • Insufficient financial management capacity of farmers • Insufficient knowledge about agriculture • Unfavourable political interference AFRACA/FAO/World Bank

  10. Insurance and Lending • Reduces credit default risk but, could have a negative impact on banks’ lending operations. AFRACA/FAO/World Bank

  11. Way Forward • Promoting better on-farm risk reducing and risk coping strategies through better extension services • Understanding farmer risk attitudes • Blending insurance with other financial products AFRACA/FAO/World Bank

  12. Rural Finance Learning Centre • A website dedicated to providing access to the best materials for capacity building in the field of rural finance. http://www.ruralfinance.org/ AFRACA/FAO/World Bank

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